China has become a major global economic powerhouse for the past decades. The growing economy through the emergence of an ever-expanding middle class, which plays a prominent role in consumption as well as the fast-paced development of the technological sectors, represent many opportunities for foreign startups wishing to establish themselves in the country.
In this article, we will analyze the major trends in terms of investment from Chinese investors and the means needed to attract their interest.
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CHINA COULD DOMINATE GLOBAL VENTURE CAPITAL IN 2019
China is the second-largest venture capital market in the world and has seen VC fundraising more than double in the last two years.
- In 2016 China’s venture capital (VC) market exploded to US$50 billion — almost equal to the US.
- In 2017 KPMG reported that this number cooled to US$40 billion, but China still accounted for 26% of global VC investments.
- In April 2018 INSEAD released a report that predicted China’s VC market will exceed the US to dominate the world in 2019 or 2020.
- Zero2IPO Group recently estimated that China’s private equity and venture capital funds have 30 trillion Yuan of funds in the pipeline for the next two decades to invest in China’s new-economy sectors.
- China’s booming venture capital asset is being financed by supportive government guidance funds, cash-rich corporations, high-net-worth individuals, and serial entrepreneurs who are reinvesting their proceeds from China’s first wave of successful exits.
MAJOR PLAYERS IN CHINA’S VENTURE CAPITAL INDUSTRY
VC activity is more heavily concentrated in China than in the United States.
The three key players in the market are commonly referred to as BAT. BAT account for almost 50% of domestic VC investment volume compared to 5% in the US.
- Baidu – the internet conglomerate behind China’s largest search engine with the same name
- Alibaba – the online retail giant behind Taobao and Tmall, the largest retail marketplaces in the world
- Tencent – the gaming and social-media giant behind WeChat, the biggest social media platform in China with more than 1 billion users.
The leader in terms of the number and also the volume of investments is Tencent, which has invested over $60bn in over 350 companies since 2012.
There are other independent venture capital firms including established players from the US.
INVESTMENT PICKS – BASIC NEEDS AND CUTTING EDGE TECH
In terms of demand, basic consumption, especially for niche consumer groups such as infant mothers, will remain resilient to an economic slowdown.
Most VCs are also optimistic about the growth of the medical and healthcare sectors. Education and training are an industry that is recession proof.
Many VCs also expressed interest in life sciences and biotechnology.
There are specialized industry sectors being targeted by the Chinese government in Artificial Intelligence, Big Data, Cloud Computing and many other hi-tech and innovative industries where western companies have the expertise that is highly in demand.
ByteDance, the developer of the popular Tik Tok video clip app, raised $3 billion last year. © AP